How F.I.R.E. Can Give You the Freedom You Always Wanted

This year so far has been really crazy at work for me. My stress levels from have been pretty high but it has been great inspiration for my post topic today, F.I.R.E. FIRE stands for Financial Independence / Retire Early. Although the acronym is relatively new, the concept is not. FIRE or Financial Freedom, is a plan, a way of thinking, and a way of life.

FIRE allows you to have freedom to take back control over your life. It allows you to spend more time with your family, get rid of the stress of looming bills, and take vacations when you feel like it, not when it is convenient for your job. Could you imagine spending your days working on your greatest passion without being a struggling artist or writer?

It may sound too good to be true but it is achievable through simple strategies. If you have any desire to escape the stress of the corporate world or finally achieve the freedom of more time that you’ve always wanted, then you need to catch FIRE (sorry but I had to, I love puns).

What Exactly does FIRE Mean?

Financial Independence (FI) is the stage at which you are not concerned by money. You work at your job, not because you need to but because you choose to and enjoy the work. Providing this security is both a sizeable amount of savings, for if you need cash fast, and investments, which give you passive income to support yourself. The passive income is key. At the FI stage, this income covers your daily expenses for the rest of your life. By expenses I don’t mean a lease on a new Lamborghini, but what your current lifestyle expenses are. Some (including me) view this stage as both FI and RE because you could in theory retire early, but others like to go a bit further for the Retire Early stage.

Some people do not consider themselves at the RE stage until their passive income not only covers their current lifestyle, but also covers a life of more luxury without the need for a job. There’s no harm in shooting for the stars (or a new Lambo) when trying to achieve a goal, but I consider this extra step as an added bonus. For the sake of this post, I am going to refer to the Financial Independence and Retire Early stages as one in the same, aka FIRE / Financial Freedom.

Why You Should Pursue FIRE?

You may be thinking to yourself, especially if you have a job that you love, that retiring sounds boring. Who wants to sit around in their pajamas all day watching tv? The reality is that many people who reach FIRE continue to work, but they choose to only work on things that excite them. Some choose to own their own business, others choose to work for a non-profit, and some make money with their hobbies. Once you hit FIRE, you have no pressure to stay or leave your job. You make the decisions on where you put your effort.

I have chosen to join this FIRE movement because of the freedom it brings. I work in Finance in NYC (not as high paying and as glamorous as it sounds) and it is not my dream career. Some people I talk to at work light up when they talk about topics such as different fixed income investments or how the current macroeconomic climate may impact the Financial Services industry. You can clearly tell that they enjoy what they do.

Every job has parts about it that aren’t glamorous but overall, you should look forward to what you work on. I want the freedom to choose to work for a company or on a project that inspires me, even if it means less pay coming in. I also want the freedom to take vacations when I choose to and spend time with my family when I eventually choose to have kids. Just switching careers will not give me this flexibility of time or the financial security I want for the future.

How to Purse Financial Freedom

Pursuing FIRE in theory is pretty simple, although execution is more challenging. It is simply a combination of decreasing your living expenses and increasing your income through assets and investments. Some people focus more on the expense decrease side and some more on the wealth increase side. You need a combination of both but how much of each one is to your preference.

Part 1 – Tackling Your Living Expenses

This is where most people tend to have the most control over. I started focusing here first when I started to pursue FIRE, and I definitely recommend this is a starting place for others.

Without getting too much into the math I want to layout some basic figures to show you how decreasing your expenses to save more can make a huge impact on your life. If you save 15% of your after-tax paycheck, you can retire after 45 years of work. So, assuming that you started working at age 22, you will retire at the age of 67. These figures assume you are making average returns in the stock market, take inflation into account, and assume that you will live off of 4% of your retirement fund per year (which is normal). To someone like me who isn’t thrilled about their career or being restricted on my working hours and vacation days, that is a long chunk of my life. If you agree, read on.

Let’s say that you decrease your expenses even more to save 30%, then you can retire after 30 years of work. At a 40% savings rate, you can retire after about 20 years, which is age 42. The more aggressive you save, the less years you are required to work for your employer.

The math doesn’t lie but depending on your salary, you are limited to how much of your after-tax paycheck you can realistically save. However, once you take a hard look at where you are spending your money, you will be shocked at how much of a dent you can make in your expenses without sacrificing a quality lifestyle. The savings rates I mentioned above were still assuming that you will spend the majority of your paycheck, which isn’t bad.

If you aren’t 22, there is still time to make a difference in when you reach FIRE. When I was 22, my savings rate was very small and I probably wouldn’t have retired by the age of 70 at the rate I was going. If you think it is too late to do something, then it is the same as saying that a smoker shouldn’t bother to quit because they have already started in the first place. Trust me there is always something you can do to put yourself in a better situation.

Debt

The first thing I need to address is debt. We have all heard about the mass amounts of student loan debt that is choking the millennial generation. The average student loan debt is almost $50k! While that is disturbing, the other hidden monster that doesn’t seem to get as much attention is the fact that American credit card debt is hitting an all-time high. If you are dealing with debt from credit cards or high interest loans, then you are dealing with a financial emergency that needs to be addressed ASAP. Continuing down this path will only lead to bankruptcy or working well past the typical age of retirement.

Don’t get me wrong, I don’t mean to sound like I am judging those in debt. I used to be like most of the US, falling down the debt rabbit hole very quickly in my early to mid-twenties. Back then, I had a small student loan at an interest rate that was double most, a maxed-out credit card, and a high interest rate personal loan. All in, I was at almost $25k in debt. Now, at 27, I am going to be consumer debt free with my next paycheck and my student loan debt is less than $4k. The key is tackling that debt first.

You may be thinking that if you invest your money, then you can pay down your debt quicker. Don’t play into this thought process. On average the S&P 500 has delivered returns of 9.7% (7% after inflation). If you pay your 19.5% credit card, you are gaining that 19.5% return guaranteed. The stock market is also very volatile so that 9.7% return is not guaranteed but if you are in debt, the interest charges on your credit cards are. Double return sounds pretty good to me.

Emergency Fund

An emergency fund will keep you out of debt. In addition to paying down my debt, I have also grown an emergency fund. The personal loan I took out was due to some bad luck with a surprise medical issue that wasn’t fully covered by my health insurance. Emergency funds are really important for the unplanned; medical expenses are the biggest reason behind bankruptcy.

If I had been using the extra money from my paychecks towards creating an emergency fund when I was younger, then I wouldn’t have had to take out the additional high interest loan. At the age of 24 I didn’t expect to have major medical expenses but that is the purpose of an emergency fund. A solid safety net of 3 to 6 months of expenses can keep you in control when surprises happen.

Being Smart About your Expenses

I am not going to suggest extreme frugality like only eating packaged ramen and making your own clothes. Being smart about your expenses means living within your means. If you have an expensive car loan hanging over your head, you should not be heading to Europe for a week-long vacation, there are many less expensive options for vacations. Just because you can qualify for a $600k mortgage doesn’t mean you should take on that massive amount of debt. If you get a raise at work, you shouldn’t head straight to the mall to “treat yo self.”

Some of that may seem obvious but there’s another factor that can help, which is mindfulness. Being mindful about spending is crucial. Anytime you purchase something, you should make it a habit to ask yourself what this purchase will bring you and what you may be sacrificing. Will it bring you true lasting happiness or will it just give you the new purchase high for a day? Over the past year, I have really been making an effort to incorporate this into my everyday life. I don’t want to anyone to feel like they are giving up a quality lifestyle. I want people to reevaluate their spending habits to see which habits actually make a difference in their lives and which are just fluff.

Part 2 – Increasing Your Income

I was taught the middle-class way of achieving wealth, which is to get a good job with great benefits and work really hard so you can get promotions while slowly saving for retirement. Although this is one way to increase your income, there are so many other old and new creative ways to add wealth. I could go on and on about ways to add income but I will keep it high level today to avoid writing a novel.

Side Hustles

Side hustles are becoming increasingly more popular ways to add to your current income and there are endless options to choose from. I definitely recommend keeping your current job while adding a side hustle so that you can get the benefits of both. Some examples of side hustles include but are definitely not limited to:

Freelancing a skill that you have

Setting up a business part-time with someone who can handle it full-time

Selling handmade crafts on the internet

Driving for a company such as Uber or Lyft during your spare time

Selling your photos to a stock photo website

Renting out a room on AirBNB or Home Away

Investing in real estate through rental properties, flips, or wholesaling

Selling your used stuff online or through apps

Some of these require a lot of time and investment while others don’t at all. The flexibility is the best part about side hustles.

Your Career

When it comes to your career, you need to focus on increasing your salary. Look for ways to work on tasks or on teams that solve problems for your company. If you are working on a problem the company has, it is almost guaranteed that important eyes will be on the outcome of the solution. Senior leaders in your company or department need to know what you are working on. If you help them, they help you in your career.

Sometimes that hard work on valuable solutions, will only get you so far. As I grew into my field, I started hearing more and more about how women are great negotiators for their company but not for themselves. Negotiating for yourself is vital for increasing your salary. The number one thing I recommend when it comes to asking for a raise, that has worked for me, is to use facts. Your current or future employer doesn’t care that you feel that you deserve a raise. You must show them exactly why you deserve this raise. For example, “I have taken on projects x, y, and z successfully since last year and with this added responsibility, I would like you to consider increasing my current salary when compensation discussions take place this year.” You won’t know if you can get the raise unless you try.

Stock Market

Most people have other things to do besides researching stocks to invest in. That’s why love investing in ETFs (exchange traded funds). Investing in ETFs is a way to diversify your investment in the stock market at very low costs. It is similar to a stock where you can trade it at any time the market is open. You choose how much of an ETF you want to purchase and it will diversify your money across many different stocks.

There are all types of ETFs based on what you want to invest in. Some mirror indexes such as the S&P 500, some are regionally focused, and some cover certain industries such as technology or energy. You can even find ETFs for socially responsible investing if you are concerned about supporting certain companies.

When I first started, I chose an ETF that mirrored a major index to keep it simple and stable. The key to investing in the stock market is to avoid panic selling. The market will go down at some point. Those who lose money, sell during these downturns, those who make money either do not touch their funds or invest more into the market at a downturn. It is not a loss unless you sell.

How to Start

If you don’t have a budget yet, make one asap. You need to know where your money is going. When I first started, my budget helped me see where I was spending the most amount of money *cough taxis cough food delivery cough*.

If you already have a budget, pick aspect of Financial Freedom to focus on and create a plan. You may want to start with paying down debt and creating an emergency savings. If you already have zero debt and some savings, start thinking about which strategy of increasing your wealth would fit best with your lifestyle.

As I continue on my path towards FIRE, I’m going to share with you all what I have learned, strategies that work, and what to avoid. Now I’m off to get Girl on Fire by Alicia Keys out of my head.

Welcome

Hi! I'm Eliza B., the creator of Wellness and Wallet. Although my day job is in Finance, I love researching and trying out ways to get a healthier body, mind, soul, and wallet. I created this blog to share my experiences and offer any helpful advice. If you have any interest in getting closer to financial freedom without sacrificing healthy living, then come take a look at Wellness and Wallet! My Full Story…